International diversity and IHRM

As was noted in the introductory part of this chapter, countries and their people are different. Such differences have implications on what can and cannot be done and even how to do it in people management. For the purpose of simplicity, these diversities are organised into three main blocks: economic, human capital, and culture (Leopold et al. 2005). These factors explain the extent to which human resource management functions may take different forms and encounter challenges depending on the seriousness of the impact of such factors.

Economy

The level of economic development of a particular country is determined by many factors, including the gross domestic product (GDP), the rate of inflation, the extent of infrastructural development (roads, electricity, telephone, railway network), the extent of poverty in the majority of the population etc. In the 1970s and 80s, there was a strong dichotomy between the so called developed and underdeveloped countries. The former constituted most European countries, Russia, North America, Australia and Japan, while the latter referred to Asian, African and Latin American countries. In the 2000s, a serious ambiguity was observed in this dichotomy. Some economic analysts were afraid to call China, North Korea, Thailand, Malaysia and some others ‘developing countries‘ because of vast developments levels reached by such countries in the last two decades; whereas Africa, on the other hand, continued to be seen as being deeply rooted in the mire of poverty in various forms. Due to low levels of development, international human resource managers working in poor countries (mostly in Sub Saharan Africa and the Caribbean) face peculiar challenges, which are by and large different from those experienced by their colleagues elsewhere. For example, high inflation would usually affect staff purchasing power and hence the need to continuously adjust salaries. Unreliable supply of electricity would usually cause frustrations not only in production but also in ability to communicate or live in a comfortable home. Widespread poverty in the community may lead to local staff spending a substantial part of their salaries and benefits on supporting those in the neighbourhood and relatives thus reducing their consumption basket. This may trigger undesirable consequences including theft, corruption, and engagement in moonlighting activities at the expense of the organisation. There are a myriad of cause and effect relationships between low level of economic development, effectiveness in human resource functions and performance of MNCs.

Human capital

The quality of primary education, vocational training, university education, and professional training varies across countries. It is not possible for a poor country to afford the luxury of quality education of an international standing for a sizeable proportion of the workforce, let alone basic literacy. Difficulties in recruiting local staff with sufficient competence in communication, numerical, and computer skills are some of the manifestations of low quality of education in poor countries. There are also cases where poor countries have excelled in some disciplines attracting recruitment from world class MNCs. India is a case in point where it has some of the most renowned specialists in medicine and computer science. Even where the country has strong human capital, language barriers have a strong correlation with employees’ ability to display his/her levels of competence. Differences in the quality and number of qualified local staff have unnecessarily led to the employment of expensive expatriates, which also complicates other human resource functions.

Culture

Beach & McKenna (2002) describe culture as constituting values, attitudes, beliefs, assumptions, action, and procedures that people adopt in their life. Cultural orientation is a result of historical development of society within a certain environment. Employees are drawn from different cultural environments and therefore see the world in different ways. Religion and social structures are major influences on cultural diversity across the globe. Table displays the main tenets of national culture.

Table ; The nature of diversity in national culture

Beliefs, communication and social structures are key areas that make up culture and distinguish one society from another, as do employees’ attitudes and values from one country to another. These major building blocks of national culture are well developed by various researchers worldwide. The most outstanding work is that of Hofstede (1980) which identified cultural dimensions that affect international organisations. These were later put into dualities (Bento & Ferreira 1992), and were adapted by Schuler (2000) and are hereby re-adapted as shown in Figure.

 Figure ; Cultural dimensions in IHRM

Figure depicts dual dimensions of culture depending on continent; country and organisation have effects on perceptions and interpretations of organisational effectiveness as shown by the arrow. These differences are sources of challenges in human resource management in internationally based organisations or those that interact with international firms. Therefore, as well advanced by Sparrow & Hiltrop (1997), international human resource management concentrates on functions and activities in relation to relocation, orientation, and translation of services to help employees adapt to a new international environment. In this case, the human resource department overseas must be responsive to the cultural, political and legal environment of the host country. However, the bigger the cultural differences, the more complex managing people in an international setting becomes. Sometimes foreign staff have to be assisted in adapting to the situation rather making human resource functions flexible to the level desired by all international staff, as it may not be realistic.